Chinese Charge Former Glaxo Honcho With Corruption

Big Pharma may consider paying billions of dollars in fines for “off label” marketing and related illegal sales practices as just a cost of doing business in a highly lucrative sport of catch-me-if-you-can, but it is not used to
seeing its executives face criminal charges and possible jail time. The game changed yesterday when Chinese authorities charged Mark Reilly, the British-born former head of GlaxoSmithKline in that country,
and two other Chinese-born top executives, with corruption.

“(GSK) departments offered bribes to hospitals and doctors as well as
personnel to boost their sales. The money involved was in the billions of yuan,” a Ministry of Public Security official
told a press conference in Beijing attended by Reuters.

“The charges — which carry a maximum sentence of life in prison in the case of bribery — were seen as harsher than many industry insiders and China-based
foreign executives had expected,” write Megha Rajagopalan and Kazunori Takada.

Reilly, who had returned to China following a
vacation last summer and was said to be assisting Chinese investigators following a raid of GSK’s offices, “was accused by Chinese officials of orchestrating whole departments of Glaxo
staff to bribe doctors and health-care organizations to boost sales of the company's drugs,” Hester Plumridge, Christopher M. Matthews and Laurie Burkitt report in the Wall Street Journal. He was not arrested or detained, they report, but neither was he available for
comment yesterday.

“We take the allegations that have been raised very seriously. They are deeply concerning to us and contrary to
the values of GSK,” the company said in a statement.

The anomaly of individuals facing jail time aside, the implications for the
company — as well as for other enterprises doing business in what will soon be the world’s largest economy — are considerable.

“China’s probe of Glaxo has hurt the drugmaker’s sales in the country and spurred changes in how the company markets drugs,” reportBloomberg Businessweek’s Henry Sanderson and Natasha Khan.

“To go for an expat leader of a big company, the Chinese government is showing that they’re upping the ante,” Kerry
Brown, a professor of Chinese politics at the University of Sydney, tells them. “It shows a Chinese government that’s very aware of how important their domestic market is, and
they’re saying: ‘You come here on our terms or face the consequences.’”

“Under Britain’s Bribery Act,
companies can be found liable for corruption by failing to prevent it or, more seriously, if top management is found to have turned a blind eye,” Denise Roland points out in The Telegraph, which could create two
problems.

“First, could GSK have corporate liability under the Bribery Act for failing to prevent bribery? If bribes have been paid,
this will turn on whether GSK had adequate procedures to prevent bribery,” Barry Vitou, an anti-corruption expert at law firm Pinsent Masons, tells Roland.

“Second, was wrongdoing at a level senior enough to trigger corporate liability for actually paying bribes? There is a nuanced distinction but this would be very
serious if true and can result in debarment [from public contracts] if proven….”

On a broader scale, “while major
pharmaceuticals have faced increased scrutiny of their marketing practices from governments around the world, China’s actions go significantly further by singling out a foreign national, a move
that could potentially prompt drug companies to rethink their strategy in the fast-growing market,” David Barboza and Katie Thomas write in the New York Times.

“It may be that there’s no middle ground, and that’s going to cause people to hesitate,” said Michael Li-Ming Wong, a partner at Gibson, Dunn & Crutcher with
experience in overseas corruption investigations, tells them. “It’s very different to be subjected to a different country’s laws, especially a country that is just not known for the
rule of law, and protection of individual rights,” Wong said.

What’s more, “the prosecution of foreign nationals by the
Chinese authorities is likely to prompt or accelerate similar investigations by the regulators of other countries,” Keith Williamson, head of forensic and dispute services for Asia at Alvarez
& Marsal, tells Toh Han Shih in the South China Morning
Post.

Meanwhile, Chinese state-controlled media today launched an “apparently co-ordinated media assault” on GSK, the [London]
Times’ Leo Lewis reports, “which involved very similar articles in several prominent
Chinese newspapers, compared prices of key GSK drugs in different international markets and found that prices of some were as much as 780% higher in China.”

You’d never see the independent Western press jump on a scandal-in-the-making like that now, would you?

What does it take to stop illegal actions by a major corporation, pharmaceutical or other ? Obviously, billions of dollars, which also contributes to wildly overpriced drugs making them unaffordable to so many people in outrageous preventable pain, in fines are not working. Just last night a friend was telling us that her meds for bodily rheumatoid arthritis was $5000 a month that the insurance-medicare would not cover. She couldn't get out of bed or stand. Common story.

Thom Forbes has written about marketing and media for more than 25 years. He was editorial director of Adweek and its sister publications in the 1980s and has covered the beat as a freelancer since 1990. For more than three years, he wrote Around the Net in Brand Marketing for MediaPost.